Kelley Wright at Investment Quality Trends email@example.com has written an interesting commentary in this issue of the newsletter. Here are some quotes to give you a taste:
Another intent of QE was to increase employment. To that end the policy has not been as effective as unemployment has remained fairly elevated. It is curious when one considers the intellectual horsepower at the Federal Reserve, why serious studies by well-regarded academics and economists that provide empirical evidence that although monetary policy can improve general economic conditions, it cannot induce employers to hire additional labor, have largely been ignored. Apparently the primary reason employers hire additional labor is to fulfill consumer demand for their products/services. I can’t put my finger on it but I seem to remember that consumer demand is somehow tied to income, which, if I remember correctly, is somehow connected to wages.
Due to massive deficit spending, record low interest rates and cutting costs to the bone, corporations are more lean and mean than almost any previous period and their balance sheets are absolutely pristine. Choosing not to make any large scale capital expenditures, corporations are generating so much cash it is sloshing around as in a bucket. The end result is that dividends, which are mother’s milk to us, have risen significantly, as have share repurchases.
I use the investing strategy laid out in this newsletter, but I have sent quite a few emails to Kelley Wright lambasting his comments about macro-economics. Perhaps he has actually gotten something from my emails.
The point about QE and the employment situation is right on the mark except for his disparagement of the Fed. The tools that “well-regarded academics and economists” say should be used to boost employment are not available for the Fed to use. You cannot fault them for not using the tools that they do not legally have. Fiscal stimulus is in the province of the Congress and the President. The blame for not using the effective tools lies with the Congress and to a lesser extent with the President.
Kelley Wright may say “Apparently the primary reason employers hire additional labor is to fulfill consumer demand for their products/services.” The way I put the lack of the unemployment level going down is usually elegantly stated as “What part of no freaking customers do you not understand?” I’d like to have a chance to put this to one of our current Senatorial candidates, Gabriel Gomez running on the Republican ticket.
I’d also like to ask Gabriel Gomez if he thinks that giving tax breaks to “corporations [that] are generating so much cash it is sloshing around as in a bucket” would induce them to hire more people?
Is the title of job creator appropriate for corporations that gives jobs to 100 people so that those people can manipulate markets and raid other companies to destroy millions of jobs? Perhaps, as a business man, Gabriel Gomez does actually know what it takes to create jobs, but I bet he didn’t make his fortune putting those ideas into practice. What he tells us he would do in Congress doesn’t give you a lot of confidence that he actually does know.